Chargebacks are a huge headache, especially for companies that do business on the web. Unfortunately, the opportunity for fraud is far greater on the web where a customer can’t march in the door and pound on the counter if they feel ripped off. As a result, the internet consumer is favored by credit card merchant processors when a dispute arises. And for a merchant, a high chargeback history can result in the termination of your credit card merchant account.

Fortunately, not all merchant processors are created equal so it pays to shop around. In our own business, which involved internet sales, we found that switching merchant processors virtually eliminated the chargebacks. The old provider immediately refunded the customer and almost never accepted our proof of order (which was typically an email from the customer). The new provider sent us a dispute notice, we sent them the copy of the email order, and the dispute was resolved. So while card companies have their own rules about disputes, the merchant provider does have some discretion in handling them.

A good source of information on all of the issues in choosing an merchant provider is available at http://www.merchantseek.com. We never used their service but they offer a good overview of the issues. Be sure to ask specifically about how a prospective merchant processor handles chargebacks.

Aside from changing providers, here are some other things you can do to improve your discount rate and reduce your chargebacks:

Many chargebacks occur because the customer doesn’t recognize the charge on their credit card statement. Since you can control what prints on their receipt and therefore their statement, be sure it says something that clearly identifies the nature of the charge. Your phone number or web site are good choices, particularly if they help identify who you are.

Ask yourself why you have so many charge backs: quality control, slow delivery, inaccurate ads, or even just the nature of your products may produce a high return rate. And if returns are difficult or customer service is a 30 minute wait on hold….

Keep up with the enhanced fraud protection services that are available from the major credit card issuers.

Gather the necessary information from your customers so that you can process the transaction with Address Verification (AVS). This will help prevent fraudulent transactions.

Use the V-code on the back of Visa and Mastercard to ensure your customer is actually in possession of the card.

Verify that your customer has given you a good telephone number, address, and email address. Crooks usually fake these.

Require customers to read your full disclosure of terms before they place their order (e.g. refund and return policy, shipping and handling charges, taxes, back-orders, etc.).

Be sure to follow the credit card companies rules for handling backordered items.

Create a paper trail for all orders. That way you have something to send your merchant processor when a dispute occurs.

Respond to all disputes within the timeframe required by the credit card company (usually 10 days).

Never refund a different card than was used to place the order.

Multiple charges for the same amount (which occur when a customer orders the same thing more than once) often appear fraudulent. Be sure you have a separate invoice number for each order.

If you’re shipping goods, be sure to have proof of shipping and better yet delivery for all orders. being able to show the card company a receipt from, say, FedEx that it was delivered at 10:03 and it was accepted and signed for Fred Mertz is pretty convincing proof.

Visa USA offers information on chargeback management. Their Chargeback Management Guide covers the majority of chargeback types a retail or service establishment might encounter and demonstrates that merchants have considerable “preventive” control. To order the Chargeback Management Guide, call Visa at 1-800-VISA-311 and ask for item number: VBS06-01-00

Some final thoughts on picking a merchant processor:

1) Shop around and be sure you understand all of the relevant charges (monthly fees, per transaction fees, equipment fees, statement fees, on-line access fees, chargeback fees, etc.).

2) Notwithstanding #1 . . . price isn’t everything. The rock-bottom provider may not offer the best customer service.

3) Insist on references and check them thoroughly. Changing merchant providers is a big step and you don’t want to do it more than once.

4) If most of your business in internet-based, choose a provider with lots of experience in that area. You don’t want to have to pay for their training if they’re just starting internet processing.

So you’ve decided to go it on your own, work from home and build your own business. Was Dire Straits right when they said there’ll be, “money for nothing and chicks for free?”

Not to be a wet blanket, but banks are unwilling to lend to small startups, and venture capital is simply out of the question unless you consider a friend or family ‘angel’ a form of venture capital. Dunno about the chicks issue, especially since women are active and successful business owners too.

The four most common source of capital for small startups are: 1) borrowed money from friends, family, or others who know you, love you, or like you; 2) personal credit card; 3) home equity loans; and 4) SBA loans.

Credit Cards:
Many a large business started with the owner’s pocket-full-of-plastic.

The good thing about using credit cards to finance your purchases is that you don’t have to go through an elaborate loan approval process to find out if you qualify. Fill out one short form and you’ll have your answer. And, if you pay your bills on time, you’ll be building a good credit history that will help you when it comes time to apply for a larger loan.

The bad news about credit cards is that because they’re so easy to obtain, it’s easy to get in over your head and wind up more debt than you can handle. So start slow! Be careful about buying more supplies than you need just because the per-unit price is lower at higher quantities. Don’t borrow more than you can repay if things don’t grow as quickly as planned.

Many credit card issuers have very low teaser rates (0-4%). Just be sure you either pay the balance before the rate changes (usually in a 3-6 months) or pay it off with another low rate credit card. Be careful to read the fine print on the credit card agreement. Some companies impose large late payment penalties, offer very short payment terms (20 days versus 30 days), charge a much higher rate for cash advances, and, in addition, charge huge one-time fees for exceeding your credit limit, late payments, or cash advances.

When using personal credit cards for your business you’ll want to keep the accounting tidy by making your payments with a business check. It’s also wise to isolate certain cards for purely business purchases.

Home Equity Loans:
Assuming you own your own home and your credit is good, a home equity loan is a fast and easy way to fund your business startup. Many lenders will lend you up to 95% (and even 100%) of your home’s value (less the balance on your first mortgage) but they will want to see that you have a steady income that will support the payment. In other words, don’t quit your day job! Home equity loans are easier to get than business loans, typically offer lower interest rates, the interest is usually tax deductible, and they offer the protection of consumer interest laws (which business loans do not). BUT, you are putting your house in jeopardy if you can’t make the payments so be careful you don’t bite off more than you can chew.

SBA Loans:
Go to http://www.sba.gov/ for details about the most common types of SBA loans. Specifically focus your reading on the 7a Loan Guarantee, the Low Doc loan, and the Microloan programs.

Beyond “friendly loans”, home equity loans, credit cards, and SBA loans here are some other common, and not-so-common bootstrapping ideas from our book, Finding Money: The Small Business Guide To Financing.

• Leasing
• Local loan / grant programs
• Local non-SBA microloan programs
• Ask your local religious organization if they make business loans
• Find someone to co-sign your loan application
• Find someone to pledge their certificate of deposit on your loan
• Pledge someone else’s home on your loan (be sure to ask first)
• Investigate available grants: http://www.sba.gov/expanding/grants.html
• Use free publicity (by doing a charity event, contest, or other newsworthy event)
• Offer free / low cost service to a big name client, local Chamber of Commerce, business association, or church in exchange for publicity, testimonials, introductions to other customers, office space, etc.
• Share office space with an established business
• Have customer buy your raw materials / inventory
• Barter
• Do joint promotions with other businesses to reduce advertising costs
• Joint venture or co-op with another business
• Generate free publicity by writing articles for local newspapers

Many seasoned business owners never master the art of handling their finances and therefore fail or never realize their full potential. If you handle this first financing attempt right, your efforts will set the stage for a lifetime of easy financing. So be sure to only borrow what you need / can afford, and make every single payment on time. Follow those two simple principles and you’ll have credit card companies and other lenders begging to lend you money when you’re more established—or, paradoxically, refusing to talk when you need money the most.

If you need help finding money for your business, check out our all new, fully revised eBook, Finding Money—Secrets of a Former Banker.